The United States of America has a tax problem. We have too many local and state governments using ‘fire-sale’ tactics to attract business through tax breaks. It is a problem caused by conservatives. They have created the myth that taxes hurt business so lower taxes will increase business. The irony is that the strategy that conservatives inflict on government is a strategy that they would laugh at in the business world.
Panama’s strategy of low or no taxes brings in the wrong business
What’s Bad For Business is Bad For Government
When a business puts their products on sale, they do so with the expectation that it will increase business and volume will make up for the lower price. If the sale price is too low the business loses money. In addition, the customer might think there is something wrong with the product when the price is too low. If a company’s competitors match or beat the sale price, everyone loses except the customer. It is not good business.
The same is true for governments. Tax breaks reduce revenue for the maintenance and improvement of local communities. When tax breaks are overused, the community suffers from the lost revenue. The myth is that less tax revenue is more money for everyone only works if the tax break has no significant impact on the quality of the government. In addition, if competing governments are giving the same or better tax breaks the strategy fails for everyone.
In Nevada, the State has no income tax, no inventory tax, no corporate tax, and no capital gains tax. When the state or local government gives a tax break to a business, it is automatically a net loss for the community. Any business moving to Nevada is already coming for the low tax rate and any other break is just giving away money.
Panama’s What Not To Do
Panama has about the same population of Oklahoma. That is not a lot of people for tax revenue purposes. In 1994, Panama passed a law that basically gave a tax break to a property owner for 20 years. It was more complicated than that, but it attracted a lot of foreign investors. What happened?
It attracted people of modest wealth that were looking for only for the tax break. The jobs created were minimal, but it dramatically increased the value of land and property. Citizens of Panama suddenly found that home prices skyrocketed and because many were living as tenants, they had to move when the landlord sold the property for more money.
The end result was no one benefited from the tax strategy but wealthy developers.
Tax Breaks Always Fail
The reality is that tax breaks always fail. Despite thousands of tax breaks being given by local and state governments every year, there is no evidence that they actually have a positive impact on the citizens of the community. Tax breaks for companies don’t create more jobs, increase worker pay, or improve a dying economy. They make rich people richer.
